New airport delay will dent Navi Mumbai real estate prices

For all those home buyers scouting for properties in Navi Mumbai, the prices of which have been on a roller-coaster ride ever since the airport proposal was announced, some good news in the offing as the new international airport in the satellite city is likely to be delayed further.

On Monday Chief Minister Prithviraj Chavan admitted that there has been a three times cost escalation in building the new airport due to stand off over compensation to project-affected people as well as other land acquisition hurdles due to which the project will not see the light of the day until at least 2015.

Prices in Ulwe and Donagiri, barely two kilometers from the airport site, are bound to see a correction now after developers gravitated towards it and drove up the prices when the airport project was announced in 2010.

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[caption id=“attachment_682476” align=“alignleft” width=“380”] Enquiries are not turning into deals, which is a bad news for builders. Reuters[/caption]

Last year, property research firm Knight Frank had said that Ulwe, Kalamboli, Kharghar and Panvel are the most promising property investment destinations. But the assessment was based on the fact that the airport is expected to become operational in 2016. However, the project, touted as a mega infrastructure project to ease Mumbai’s air traffic woes, remains mired in property disputes years after conception.

From Rs 4,766 crore in 2006-07, the cost of construction has increased to Rs 14, 573 crore, Chavan said in reply to a question by member Sanjay Dutt in the legislative council.

“The cost was prepared in 2006-07 to cater to 40 lakh passengers annually, but the new planning is according to international standards and the airport will service 60 lakh passengers,” Chavan said, adding that the proposed capacity of the airport was another reason for cost escalation.

The new international airport needs about 1,160 hectares of land for pure aviation purpose while 225 hectares is required for other purposes near the airport. Out of the 1,160 hectares land required for aviation, 291 hectares of land is yet to be acquired. Typically, an international airport takes about seven years to get commissioned from the time of basic construction, while land acquisition could take at least two to three years.

This means the project work could only start in 2015 or 16.

According to Chavan, the project will be completed in four phases, of which the first phase requires Rs 9150 crore alone. But since the price of land and compensation to be paid to the project-affected people too has risen, the airport is likely to be delayed further.

Acquisition of 291 hectares has been delayed because of opposition by the project-affected who are demanding return of at least 30 percent of developed land as against the CIDCO’s offer of 12.5 percent. With elections due in 2014, many political parties such as the Shiv Sena and Peasants and Workers Party (PWP) have joined the farmer agitation, making sure the process is delayed even further.

“As things stand now, land acquisition has become a means for a multitude of middle-men to make a lot of money. This is because the tough regulations and complexities related to acquiring land today provide huge arbitrage to such people. If the Government starts simplifying the process, middlemen can be eliminated, reducing the cost arbitrage and passing the benefit to the actual land owners,” said Mayank Saksena, Managing Director - Land Services, Jones Lang LaSalle India.

Such delays are sure to have repercussions on the real estate market too. Developers have to wait for the airport authority to go ahead with the construction because buildings cannot go above certain heights in the restricted area. Secondly, unless the project is actually commissioned, neither the hospitality nor the real estate industry can flourish as there is no scope for habitations in these areas.

“The current real estate prices in these areas at Rs 5,000 a square foot are unreasonable. Infrastructure projects like the proposed airport, the Mumbai Trans Harbour Sea Link and the Navi Mumbai SEZ are tools of speculation that developers use to jack up prices when they feel the crunch, " Pankaj Kapoor, MD at real estate firm Liasas Foras told Firstpost.

Secondly, the infrastructure in these places is not as good as that in other developed towns in the satellite city where prices are around Rs 6,000-7,500 a square foot. So unless you are an investor, willing to wait for at least 15 years on that investment, the current prices make no sense at all. This is evident from the lack of buyers.

“Enquiries are not turning into deals, which is a bad news for builders. We expect the prices to get corrected soon,” said another industry expert.